Can a for-profit company lease a building to nonprofit groups to run bingo games and take a big cut of the proceeds as rent?

Plain-English summary

A state senator asked the Attorney General to review an arrangement in Prince George's County in which a for-profit company, Eastover Leasing, Ltd., leased a vacant building and subleased it to civic and charitable organizations to run bingo games. Eastover supplied the equipment and services, guaranteed each sponsoring organization $300 per night, and then collected roughly four times that amount from the bingo proceeds as "basic rent," plus a share of operating expenses as "additional rent," with only the leftover proceeds going to the nonprofits.

The Attorney General concluded the arrangement violated Maryland's bingo laws. Article 27, §255 let nonprofit groups in certain counties, including Prince George's, run bingo and similar fundraisers so long as no individual or group benefited financially or received proceeds for personal use, and Article 27, §258B similarly required that a bingo "benefit performance" be managed by the sponsoring group's own members with net proceeds going to that group. Because the arrangement funneled the bulk of the proceeds to Eastover rather than the nonprofit sponsors, and because Eastover functioned as the de facto organizer and manager of the games rather than a disinterested landlord, the opinion found it went well beyond a lawful arm's-length lease and instead made the for-profit company, not the charities, the real beneficiary of the bingo games.

Currency note

This opinion was issued in 1985. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Maryland nonprofit lease a building from a for-profit company to hold bingo games?
The opinion did not say nonprofits could never lease space from a disinterested third party or buy supplies from one, but it drew a line at arrangements where the landlord's compensation went well beyond reasonable rent and necessary expenses and instead made the landlord the primary financial beneficiary of the games.

What made the Eastover Leasing arrangement illegal instead of just an ordinary commercial lease?
The opinion pointed to several features: Eastover actively sought out nonprofit "sponsors," supplied all the bingo equipment and services, and collected nearly four times what it guaranteed each sponsor, structured so its own rent payments came directly out of bingo proceeds rather than being paid as a fixed, arm's-length cost, which the opinion said made Eastover the de facto organizer of the games rather than a landlord.

Did Maryland law flatly ban all bingo games run for charity in Prince George's County?
No. Article 27, §§255 and 258B specifically permitted nonprofit civic, charitable, and similar organizations to run bingo and similar games as fundraisers in Prince George's County, as long as the group's own members managed the games personally and the net proceeds went to the sponsoring organization rather than being shared with any other individual or entity.

Background and statutory framework

Maryland law generally prohibited playing games for money under Article 27, §§237 and 241, per Brown v. State, 210 Md. 301, 307 (1956), and specifically barred leasing premises for gambling purposes under Article 27, §239. Two narrow exceptions applied in Prince George's County: Article 27, §255(b), added to the county's "carnival exception" by Chapter 438, Laws of Maryland 1973, let nonprofit organizations hold bingo, carnivals, bazaars, or raffles for their own exclusive benefit so long as no individual or group benefited financially, and required the event to be "managed by the members of such group... personally" under §255(b)(3); and Article 27, §258B, enacted the same year by Chapter 342, Laws of Maryland 1973, similarly permitted "benefit performances" including bingo, managed and operated only by the sponsoring group's own members, with net proceeds going to the group's civic purpose.

Because these were exceptions to a general anti-gambling prohibition, the opinion applied Article 27, §246's rule that gambling statutes be liberally construed to prevent the mischief the legislature intended to stop, citing Gaither v. Cate, 156 Md. 254, 258-59 (1929), which meant the §255 and §258B exemptions themselves had to be read narrowly. Applying that narrow reading, the opinion found that Eastover's compensation structure, guaranteeing sponsors a fixed, comparatively small amount while collecting the bulk of the proceeds as rent and expense reimbursement, meant the proceeds were not truly inuring to the sponsoring nonprofits' benefit as the statutes required, and that Eastover's active role in recruiting sponsors and supplying the entire bingo operation made it, rather than the nonprofit sponsors, the actual organizer and primary beneficiary of the games.

Citations

Statutes:

• Article 27, §§237 and 241 of the Maryland Code (general prohibition on playing games for money)
• Article 27, §239 of the Maryland Code (prohibition on leasing premises for gambling)
• Article 27, §255(b) of the Maryland Code (nonprofit carnival/bazaar/raffle/bingo exception, no individual financial benefit)
• Article 27, §255(b)(3) of the Maryland Code (event must be managed by the group's own members)
• Article 27, §258B of the Maryland Code (Prince George's County bingo "benefit performance" exception)
• Article 27, §246 of the Maryland Code (liberal construction of anti-gambling statutes)
• Chapter 438, Laws of Maryland 1973 (added Prince George's County to the carnival exception)
• Chapter 342, Laws of Maryland 1973 (enacted the Prince George's County bingo exception)

Cases:

• Brown v. State, 210 Md. 301, 307 (1956)
• Gaither v. Cate, 156 Md. 254, 258-59 (1929)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1985/Volume70_1985.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

GAMING

Bingo—P.G. County—Operation of Bingo Games by Profit-Making Corporation in Conjunction with Nonprofit Entities not Permitted by State Law.

January 15, 1985

The Honorable Frank J. Komenda
Senate of Maryland

You have requested our opinion on the legality under State law of an arrangement by which civic or charitable organizations in Prince George's County would conduct bingo games on premises leased from a profit-making corporation, with all the necessary equipment being supplied by the lessor, and would divide the pooled proceeds after substantial payments to the lessor for rent and expenses.

For the reasons given below, we have concluded that the arrangement you describe would violate the provisions of Article 27, §§255 and 258B of the Maryland Code.1

I
Background
A. The Proposed Transaction

You indicated that Eastover Leasing, Ltd., a for-profit corporation, has leased a vacant building in Oxon Hill with the intent of subleasing the premises to various non-profit organizations to conduct bingo games. We have examined two such subleases, with the Crescent Cities Jaycees and the Glassmanor Citizens Association.2

Under these subleases, each organization would be entitled to exclusive use of the premises on particular evenings of the week. Each organization is guaranteed $300 from the bingo proceeds on the night it uses the premises. The remainder is to be deposited in a common account, from which $1,150 per night of use is to be paid to Eastover as "basic rent". In addition, each sublessee is to pay a pro rata share of "additional rent", that is, payment for operating expenses, including "bingo supplies" and "miscellaneous expenses incident to the bingo operation". To the extent that "basic" and "additional" rent cannot be paid from current proceeds, those charges encumber future proceeds. Any excess proceeds are to be distributed monthly to the sublessees on a pro rata basis.3 Although "basic rent" includes a $125 fee for premises management, each sublease expressly provides that the sublessee is to furnish from its membership the personnel to conduct the bingo games.

B. Governing Statutes

Article 27, §§237 and 241, have been understood to generally prohibit playing any kind of game for money. Brown v. State, 210 Md. 301, 307 (1956). Moreover, State law specifically prohibits leasing any premises for the purpose of gambling. Article 27, §239.

However, in 18 counties of the State, including Prince George's County, various non-profit organizations are permitted to hold carnivals, bazaars, or raffles, including bingo games, "for the exclusive benefit of any such... organization", so long as "no individual or group of individuals benefits financially from the holding of any bazaar, carnival, or raffle or receives or is paid any of the proceeds... for personal use or benefit". Article 27, §255(b). In addition, in Prince George's County, groups of citizens, companies, associations, and corporations organized within the county to promote civic, charitable, and similar objects, "and not organized for the private profit or gain of any member", may conduct "benefit performances", including bingo games, the net proceeds of which must inure to the group or organization for its civic or similar purpose. Article 27, §258B.

Under Article 27, §255(b)(3), the event must be "managed by the members of such group, organization or corporation personally through its members". Similarly, Article 27, §258B provides that any "benefit performance" must be "managed and operated only by members of such group or organization personally"; this section also requires that the group or organization obtain a permit from the Department of Inspections and Permits for Prince George's County.

Prince George's County was added to the so-called "carnival exception" of Article 27, §255, by Chapter 438, Laws of Maryland 1973. The Prince George's County bingo exception of Article 27, §258B was enacted in the same year, by Chapter 342, Laws of Maryland 1973. Presumably, the General Assembly was aware that it was enacting two, somewhat varying, laws that would permit bingo to be played for money in Prince George's County under certain circumstances. In a similar situation, involving Charles County, this office concluded that both the so-called carnival exception and a specific bingo exception were effective, the first governing occasional fund-raising events and the second governing recurring bingo games. 61 Opinions of the Attorney General 315, 319 (1976). See also 54 Opinions of the Attorney General 161, 162 (1969). We think that the same is essentially true here. The question, then, is whether the arrangement outlined in the subleases is permissible under either §255 or §258B of Article 27.

II
Analysis

Article 27, §246, provides that "[t]he courts shall construe the [statutes] relating to gambling and betting liberally, so as to prevent the mischiefs intended to be provided against". And the Court of Appeals has held that this section applies to all statutes enacted to prevent gambling. Gaither v. Cate, 156 Md. 254, 258-59 (1929). Hence, exemptions from the anti-gambling statutes, such as those in Article 27, §§255 and 258B, must be narrowly construed.

In our view, under the arrangement at issue here, proceeds of the bingo games do not inure to the sponsoring organizations in the manner required by either §255 or §258B of Article 27. Instead, a substantial part of the proceeds is shared with Eastover Leasing as "basic rent", in addition to the reimbursement of operating expenses that is identified as "additional rent". Moreover, to the extent that the pro rata distribution of the remainder of the proceeds might not be based on the proportion that one sublessee's proceeds bears to the total proceeds of all of the sublessees, the arrangement would result in a sharing of proceeds among sponsoring organizations.

We believe that this sharing of proceeds with Eastover violates the prohibition against any individual's or group's receiving any of the proceeds of a fund-raising event "for personal use or benefit" (Article 27, §255) or "for... private gain" (Article 27, §258B). We also believe that the statutes would be violated to the extent that proceeds generated from a bingo game under the sponsorship of one organization were shared with other organizations, for the bingo game then would not be for the benefit of the sponsoring organization.

To be sure, these statutory restrictions on the use of proceeds do not necessarily mean that a nonprofit organization may not purchase supplies or prizes for its bingo games from a disinterested third party or, if necessary, lease from such a third party a place in which to hold its games. And certainly, to that extent, the third party may be said to benefit indirectly from the bingo games. However, the clearly evident intent of the section is that the sponsoring organization be the primary, and sole direct, beneficiary of the bingo games. At a minimum, any proceeds not inuring to the sponsoring organization may only be used, in our view, to pay reasonable and necessary expenses of conducting the games. Put another way, any profit to a third party must solely derive from the reasonable and necessary expenses that the nonprofit organization incurs in operating its games. The arrangement at issue here, however, appears to go far beyond that, and, indeed, effectively makes Eastover, rather than the "sponsoring" organizations, the primary beneficiary of the contemplated bingo games.

Under the subleases we have examined, each sublessee is guaranteed $300 for each night it uses the premises. But, in return, each is obligated to pay Eastover, from the bingo proceeds, nearly four times that amount in "basic rent". Eastover is to furnish, for reimbursement from the proceeds, all utilities, insurance, security, janitorial and maintenance services, and bingo supplies, everything necessary to an ongoing bingo operation except, perhaps, the personnel who would be on hand during the games.

All in all, Eastover is much more than a simple, disinterested renter of space. It is, in effect, the initiator of the bingo activity: It seeks out organizations to serve as "sponsors"; it provides the necessary bingo supplies and incidental services; and, most importantly, it has a direct financial interest in the profitability of the activity. Such involvement strongly suggests that Eastover would be the de facto manager and organizer of the bingo activity. In any event, the bingo games would not be "managed and operated only by members of [the sponsoring] group or organization personally", as required by Article 27, §258B.

In the final analysis, Article 27, §§255 and 258B were intended to allow charitable, civic, and similar nonprofit organizations to operate games of chance as fund-raising activities. They were not intended to allow a profit-making entity such as Eastover to initiate and organize bingo games, indeed, to seek out nonprofit "sponsors" that would permit it to conduct bingo operations. Under the subleasing arrangement here, Eastover has in effect hired nonprofit organizations, for a guaranteed $300 and a possibility of more, to sponsor its (Eastover's) bingo operation. This is not the kind of activity protected by Article 27, §255 or §258B.4

III
Conclusion

In summary, it is our opinion that the contemplated arrangement between Eastover Leasing and various nonprofit organizations in Prince George's County for the conduct of bingo activities is impermissible under either §255 or §258B of Article 27.5

Stephen H. Sachs, Attorney General
Richard E. Israel, Assistant Attorney General

Avery Aisenstark
Chief Counsel
Opinions and Advice

1 The Prince George's County Attorney has advised the Director of Environmental Resources that this arrangement would violate a provision of the local law prohibiting any division of proceeds between the organization sponsoring a bingo game and any other party. Memorandum from Thomas P. Smith, County Attorney, to Eugene T. Lauer, Director of Environmental Resources (November 28, 1984). In view of our conclusion, we find it unnecessary to address the question of whether the State law preempts that county law.

2 You also indicated that Eastover has entered into an agreement with the Maryland State Jaycees whereby the State organization would in some manner act as an intermediary nonprofit sponsor. However, the two subleases we have examined contain no reference to the State Jaycees.

3 It is not clear whether "pro rata" means equally according to the number of sublessees, as it apparently does for the sharing of operating expenses, or according to some other basis for division, such as the number of nights the sublessee uses the premises or the proportion of a sublessee's proceeds to the total proceeds.

4 The materials you supplied us indicate that the "basic rent" Eastover will charge its sublessees is intended to generate a total annual rent of more than three times the amount of rent that Eastover pays the building's owner. We believe our conclusion is especially true if, as these figures suggest, the rate of rental charged to sublessees exceeds the fair rental value of the property. Moreover, the subleases we have examined provide that "Sublessee's liability for rent, additional rent, and associated expenses under the terms and conditions of this lease are limited and can be collected only from the balance of Bingo proceeds". In our view, the conditional nature of the organizations' obligations further indicate that the bingo activity here is not of the type protected by Article 27, §§255 and 258B. Cf. 67 Opinions of the Attorney General 125, 129 (1982) (conditional sale of real property to charity for raffle is prohibited by Article 27, §255 if seller will receive anything more than fair market value of the property).

5 We understand that the General Assembly may be considering legislation to generally revise Article 27, §255. In this context, it might also consider the related provisions of Article 27, §258B as well.